Maersk Issues Manifesto for Change

New fees, plans for better service will affect reefer shippers

By Stephanie Nall

Maersk, the world’s largest container shipping company and reefer specialist, is ramping up an effort to significantly reduce spoilage levels of one perishable commodity – the container slots on its vessels.

“Globally, about 20 percent of all booked cargo ends up being a no-show when a vessel sails and in some trade lanes the figure is 35 percent,” said William Duggan, vice president of refrigerated services, North America for Maersk Line. “We just can’t afford to have that many empty spaces on a vessel – especially in refrigerated cargoes.”

In an effort to prevent customers from booking equipment and space on a vessel and then canceling without notice, Maersk intends to impose what it is calling a “load protection” fee on no-shows by the end of the year. While Duggan said Maersk has not yet set the fee level, another Maersk official told a European newspaper it will be about $500 per refrigerated container.

The proposed load protection fee is just one aspect of sweeping changes the carrier wants to see made, not just at Maersk, but throughout the container industry. Top Maersk executives unveiled a new shipping “manifesto” during an industry conference in Europe in early June 2011. The carrier has set up a new website www.Changingthewaywethinkaboutshipping.com to unveil its proposals and to survey shippers about proposed changes.

“What Maersk is looking at doing (with the load protection fee) is aimed at reducing empty slots on a vessel. We don’t want to impose a fee, we want to impose discipline in the marketplace,” Duggan said. “We need to have our vessels filled and we know that shippers need the equipment they book.”

In the past several years overbooking has become a major problem in ocean shipping – on both sides of the equation. Shippers say they have been forced into reserving more equipment and vessel space than they think they will need because ocean carriers have been overbooking their vessels.

“These days, if you want to make sure you get equipment, you make double or triple bookings on different carriers,” said Bob Weiss, administrator of the Food Shippers Association of North America. “Shippers feel they have to because too often you find out when you go to pick up a container that your booking has been canceled by the carrier.”

Duggan acknowledges that overbooking by carriers exists because they can’t afford for vessels not to be full.

“We want to be held accountable too,” Duggan said. “Shippers will pay for no-show business, but we will pay the exact same fee if we don’t deliver equipment or don’t have a slot for cargo that was booked.”

Duggan said overbooking is especially high in the refrigerated supply chain where demand exceeds supply.

“We need to count on customers to give us the business they promised and customers need to count on us to deliver the equipment and service we promised,” Duggan said.

Despite the possibility of paying $500 for a last-minute cancellation, shippers have been vocal in their support.

“The fee is a good idea,” Weiss said. “There are traffic people who are not well organized. Customs forms are always being done at the last moment. And when space or equipment is limited it gets more complicated.”

Weiss said he thinks it is “fair” for the carriers to charge for no-shows and said the threat of fees should help both sides honor bookings and fix a broken system.

“This only comes up when space is short,” Weiss said. “Not getting equipment at the last minute can really mess up a supply chain. It’s not just that you aren’t making that one sale – the implications go beyond that.”

Weiss used apple shipments as an example of cascading effects.

“With apples you have to wash them, polish them and size them, put them in a box and put them back in cold storage for two days to get the temperature back down. If you do all that and then there is no container available, the boxed apples are still in that storage space taking up more room than when they were just in crates. Maybe then there isn’t room to store other produce or get other orders ready.”

Dan Vache, vice president of supply chain management for the United Fresh Produce Association said the proposed load protection fee should help build better business relationships.

“With the overbookings, it sounds like the two sides don’t trust their trading partners. If you get in a situation where you think you have to order more trucks or rail cars or containers than you need because you aren’t sure you’ll get what you order, it is a bad situation,” Vache said. “Carriers and their customers have to have trust each other and a good sound, solid relation. You shouldn’t have to play games with booking. You should be realistic, it’s the right thing to do.”

Vache said that in an ideal scenario “You fulfill your commitments and we’ll fulfill ours.”

Duggan agreed that the goal is better business relationships. “Improving communications really is key,” he said. “We tell our customers that when sales are completed, when they have made sales, their forecasting to carriers is critical so we can reposition equipment.”

Better forecasting from customers will result in better service from the carrier, said.

The fee is getting a lot of attention, but it is only a small fraction of what Maersk wants to achieve, Duggan said.

The Maersk manifesto urges shippers to move away from taking a narrow view of choosing carriers based on low freight rates and focus instead on improving service reliability, ease of doing business and environmental performance.

Duggan said Maersk is aggressively working to make it easier for customers with refrigerated cargo.

“The refrigeration business has changed over the past years,” Duggan said. “Now you call in and get the first clerk that comes to a phone, probably get a different person each time and it’s someone not as familiar with refrigeration.”

He said that over the past several years Maersk has had an aggressive campaign to place experienced people in every part of the operation, with a special focus on customer service.

“ ‘Own the customer’ is a project where when a customer — an importer or exporter — calls in, a person assigned to that customer will answer and will know the customer by name. The customer knows who to call in and ask for.

That representative can “needle-stitch” the entire service together, Duggan said, rather than have a customer bounced around from department to department. Customers can deal with one person to take care of issues with invoicing, problems at terminals or documentation. Since that program has been implemented in North America, customer ratings have gone up each quarter, he said.

Weiss said that service levels at all ocean carriers have dropped and Maersk’s new approach is welcome.

“It’s a great idea to have dedicated customer service representatives for individual accounts,” Weiss said. “In the old days, bookings were done locally. You got to know the person; maybe had lunch with them once in a while. It makes a big difference on service.”

Honoring bookings is one measure of reliability, Duggan said, another is on-time performance.

According to industry consulting company SeaIntel, on-time arrival of vessels is around 50 percent industry wide.

“On-time delivery is important throughout the supply chain, but the need for reliability is more pronounced on the perishable side, where the product is literally ripening and expiring in the box,” Duggan said.

A few days can make a big difference on the value of what’s in the box to the customer. Produce that has spoiled can’t be sold at all and fruits or vegetables that are still edible, but past their prime, sell for a lower price.

According to SeaIntel, Maersk’s vessels arrive on time about 80 percent of the time. Duggan said that while that is well above industry average, the carrier’s goal is to increase that to 95 percent over the next few years.

“As our on-time project gets unrolled, Maersk hopes to separate ourselves from the rest of the industry and deliver what we sell,” he said. “We want to be the carrier on the ocean side that you can set your watch by.”

Rich Burden, director of transportation for Naturipe Farms, which both imports and exports produce, said ocean carriers, including Maersk, have a long way to go on adequate on-time service and delivery.

Burden said he supports the load protection fee because for Maersk, space is a perishable commodity. But he said overbooking is just one factor to consider and suggests that carriers should also compensate shippers when other areas of service fall short.

“Late arrivals and having vessels arriving at ports on days when containers aren’t available to shippers is a big problem,” Burden said.

“We had one service this year where the vessel came in to Philadelphia every Wednesday. Half-way through the season, they changed the schedule so that the vessel arrives on Friday. Well, that port is closed on weekends, so our fruit just sits on the vessels until Monday. That killed us in the berry market this year. Berries just don’t have a couple extra days of shelf life.”

He cited another instance last year when a vessel breakdown resulted in cargo scheduled to arrive a week and a half before Christmas instead got into port two days before Christmas.

Burden said that while he believes the reciprocal compensation on no –shows is a good idea, he said shippers and receivers should also be compensated when bad service means perishable cargo is late and worth less.

“I’ve often wondered, if a vessel coming from South America is really full of perishables and it is heading to a perishable specialty port like Miami or Philadelphia, why is a carrier scheduling that vessel to arrive on a Friday?”

The third main topic in the Maersk manifesto involves not only lessening negative environmental impacts from shipping operations, but giving shippers a way to easily measure a carrier’s carbon footprint.

“Sustainability hasn’t become a major driver yet for shippers in determining what carrier to use, but we think that it will become one in the future,” Duggan said.

Currently, in some parts of Europe grocery stores display signs that tell where produce, meat or seafood came from, how many miles it traveled and the level of its carbon footprint.

“In the U.S. we’re not there yet, but we think it’s coming, and we are seeing some corporate citizenship looking at that. So far we haven’t seen enough of that to cause bookings to change from one carrier to the next based on environmental performance, but we believe that is on the way,” Duggan said.